As of last June, more than two years after New York legalized recreational marijuana, only 12 state-licensed dispensaries had opened their doors, well below Gov. Kathy Hochul’s prediction that more than 100 would be operating by that time. summer. Six months later, Hochul boasted that “nearly 40 adult-use dispensaries will open in 2023.” The current count is 87. Those stores, The New York Times notes, “they are far outnumbered by more than 2,000 rogue head shops, the subject of complaints that they steal customers, sell to children and attract criminals.”
The rollout of marijuana legalization in New York was a “disaster,” Hochul admitted in January. “Every other storefront” is an unlicensed pot shop, he said The Buffalo News. “It’s crazy.”
This disaster has frustrated potential retailers, left farmers in the lurch, wreaked havoc with tax revenue projections, and made a mockery of any expectation that New York, learning from the experience of states that had legalized marijuana previously, would done better job of replacing the black market. The madness Hochul perceives is the product of poor decisions by politicians who should have known better and obstruction by regulators who sacrificed efficiency on the altar of diversity.
Unlike states like New Jersey, where voters approved legalization in 2020, and Maryland, where a similar ballot initiative passed two years later, New York initially did not allow existing medical dispensaries to begin serving the recreational market. Its slow and cumbersome licensing process, which was skewed by an “equity” program that prioritized approval of applicants with marijuana-related criminal records or their relatives, is incredibly difficult to manage.
Such preferences resulted in lawsuits from excluded individuals, which further delayed approval of licenses. Guidance and financial help for people struggling to jump through the state’s hoops never materialized. And as in other states, high taxes and burdensome regulations have made it difficult for licensed businesses to compete with unauthorized retailers.
THE Times The story, which opens with the stark numerical contrast between these two categories of marijuana providers, later takes a more positive turn: “New York now has more licensed recreational dispensaries than any other state on the East Coast except Massachusetts.” But this is also not true.
Maine, where voters approved legalization in 2016, has 139 recreational dispensaries, serving a population less than a tenth of New York’s. New Jersey, with a population less than half that of New York, has 101 recreational dispensaries two years after legal sales began.
Connecticut, which legalized recreational marijuana the same year as New York, has 28 dispensaries serving that market, nearly double per capita. Maryland, which legalized marijuana in 2022, has 101 dispensaries serving recreational users and patients. Maryland’s population is less than a third of New York’s. Even tiny Rhode Island – which has a population one-twentieth that of New York, legalized marijuana a year later and has only a half-dozen recreational dispensaries – still has more per capita.
New York’s population is nearly three times larger than that of Massachusetts, where legal recreational sales began in November 2018. Massachusetts has nearly 400 licensed dispensaries. That’s about six licensed retailers per 100,000 residents, compared to about 0.4 per 100,000 in New York.
When you consider the situation in other regions of the country, New York’s pitiful number of licensed dispensaries appears even worse. Colorado, where the first recreational outlets opened in 2014, now has 670, or about 11 per 100,000 residents. Oregon, where legal recreational sales began the same year, has more than 800 licensed outlets, about 19 for every 100,000 Oregonians.
Both states, of course, got a jump start on New York, passing legalization in 2012 and 2014, respectively. But New Mexico legalized recreational marijuana the same year as New York, and has more than 1,000 dispensaries, serving a population one-tenth the size of New York.
In any case, New York has done a poor job of getting licensed dispensaries up and running. But the Times sees another silver lining: He notes that dispensary owners “include people with criminal convictions, veterans, women, nonprofits, and people of Black, Latino, and Asian descent.”
The affirmative action that helped achieve that diversity is part of the problem. Among other things, New York has imposed preferences for license applicants who have suffered in the anti-cannabis crusade. While that idea has a nice symmetry, it has never made much sense as a way to undo the damage inflicted by the criminalization of cannabis. And in practice, the plan’s implementation has dramatically limited the legal supply of marijuana.
People with marijuana convictions certainly should not be excluded from participating in the new legal market, a policy that would add insult to injury. But that doesn’t mean they should have a legal advantage over cannabis entrepreneurs who have never been arrested but may be more qualified.
The state probably owes something to the people who were punished for engaging in an activity that it has now decided to legalize. But why should compensation take the form of marijuana licensing preferences, rather than, for example, direct financial compensation for legal fees and loss of liberty? New York’s chosen method is limited to people currently interested in selling cannabis, which illogically excludes many others who have been harmed by the enforcement of state marijuana laws.
Hochul is proud of New York’s equity efforts, however, even as she laments the state’s slow progress toward a legal market. “I’m very tired of how long it takes to get some of these approvals,” she said The Buffalo News after New York’s Cannabis Control Board canceled a meeting at which it was expected to approve new retail licenses. “My understanding is that the board should have considered 400 applicants. Only three new stores were approved… My team got involved and [said], ‘No, go back to the drawing board, work harder, get this project done.’ And no, I’m not happy with the pace.”
Part of the solution, according to Hochul, is cracking down on all those “rogue head shops,” which is likely to inflict exactly the kind of harm New York is supposedly trying to ameliorate by punishing business owners for filling the void left by the policies state. wrong policies and administrative incompetence. Even more promisingly, Hochul ordered “a top-to-bottom overhaul of the state’s licensing bureaucracy,” with the goal of “shortening the time it takes to process applications and open businesses.”
THE Times notes that license applicants “have filed lawsuits accusing the agency of overstepping its authority, providing conflicting guidance, and discriminating against white men in its push for diversity.” The implementation “was delayed for months due to lawsuits, the state’s months-long regulatory process, and the state’s failure to provide the initial loans and real estate it had promised to the first 150 dispensaries.”
A recent scandal involving Damian Fagon, chief equity officer of New York’s Office of Cannabis Management, reinforced the impression of dysfunction. Jenny Argie, owner of a company that supplies edibles to dispensaries, said Times that Fagon “retaliated against her company, Jenny’s Baked at Home, after the New York Cannabis Insider published portions of a conversation with him about the state’s failure to punish bad actors, which she had recorded.” A month later, “her products were withdrawn from the market, a first for the state, and her business was temporarily closed.” Fagon was placed on administrative leave pending the outcome of an investigation by the state inspector general’s office.
Legalization activist Annette Fernandez defended Fagon in an interview with the Times. “Regardless of his arrogance,” he said, “he is still the number one advocate of fairness.” But the equity program is itself an act of hubris, distorting the market by prioritizing progressive goals instead of licensing anyone with the means to run a successful marijuana business.
In addition to the bureaucratic shakeup, Hochul supports legislation that would substantially reduce state taxes on marijuana. As should have been obvious to anyone paying attention to what happened in states like California (which apparently didn’t include New York lawmakers), taxes are a major factor in the ability of licensed marijuana businesses to compete with the black market , attract customers and make a profit.
New York collects a 13% retail tax on cannabis products, plus a tax based on their THC content: 3 cents per milligram in edibles, eight-tenths of a cent per milligram in concentrates, and a half-cent per milligram in flowers. That tax amounts to 30 cents for a candy containing 10 milligrams of THC and $3 for a 100-milligram candy bar. And because it is collected by the distributor, its impact is compounded by mark-ups and taxes at the retail level. Hochul favors replacing the THC tax with a 9% wholesale excise tax.
The THC tax is one of those ideas that appeals to progressive technocrats who pay little attention to unintended consequences. The rationale was that it would help maintain revenue in the face of falling retail prices, while discouraging overconsumption by forcing consumers to pay more for higher-strength products. Lawmakers somehow did not take into account the existence of a black market where the tax rate is zero. Given this reality, there is an inevitable trade-off between using taxes to raise revenue or paternalistically stimulate consumers and convincing these consumers to patronize businesses that actually collect taxes.
In December 2022, Hochul unveiled a “licensed cannabis dispensary tool” that consumers could use to check the legal status of a cannabis store. He urged shoppers to look for signs “posted in the windows of legally licensed retail dispensaries” that include a QR code to verify that a store is officially authorized to sell cannabis. He said the signs “will help protect public health and strengthen our ability to achieve a fair cannabis market under our law” and promised to “shut down illicit operators who sell products that put New Yorkers at risk.”
More than a year later, these “illicit operators” outnumber “legally licensed retail dispensaries” by a ratio of about 23 to 1. Instead of trying to scare consumers about the risks that may lurk in the black market or urge them to do the their civic duty By avoiding it, perhaps New York politicians should remove the barriers that have fostered the embarrassing situation in which they find themselves.